The Long-Run and Distributional Impacts of Public Pensions

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Résumé (français)

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Résumé (anglais)

Raising the early eligibility age (EEA) for old-age pensions is a popular policy to reduce financial pressure on pension systems. A mature literature has investigated the short-run impact of the EEA on labor supply, but knowing the EEA’s long-run impact on economic well-being and poverty is essential for welfare. This paper addresses this gap by studying two Canadian pension reforms that reduced the EEA from age 65 to 60. The reforms took place in the 1980s, enabling us to follow affected individuals over their entire retirement period. Using comprehensive tax records and a variety of research designs, we obtain three findings. First, a one-year reduction in the EEA lowers the pension claiming age by 0.25 years but does not affect the labor market exit age. Second, early claiming increases pension and total income between age 60 and 64, but pension and income losses after age 65 overshadow these gains. Third, lowering the EEA has significant distributional consequences: the losses in pension and total income are concentrated among richer retirees. In contrast, low-income retirees experience an improvement in later-life economic well-being. Overall, the EEA reduction in the 1980s is associated with a significant decline in poverty rates in Canada.